Options exchange giant cboe reveals bitcoin futures specs
Someone who is bearish on bitcoin might sell one bitcoin futures contract that expires one month from today. A bitcoin bull who thinks the price will go up takes the other side of the contract. Futures contracts are a zero-sum game. For every dollar made by one market participant, another market participant must necessarily lose one dollar. Thus, owning one XBT contract is economically equivalent to owning one bitcoin.
Owning 50 XBT contracts is like owning 50 bitcoin. With the click of a button, speculators will be able to profit on the ups and downs of bitcoin without any of the hassle of actually owning bitcoin. Buying bitcoin is hard, and at times, impossible.
Many exchanges have deposit and withdrawal limits, and some have had problems processing customer orders when market prices move quickly. In contrast, futures contracts can be bought and sold through an ordinary discount broker , just as stocks are bought and sold. If there's one thing to love about the CBOE bitcoin futures contract, it's that speculating on bitcoin will become much easier.
There are many bitcoin exchanges, and it isn't uncommon for prices to differ from one to another. The Gemini Exchange runs a daily auction for bitcoin at 4 p. In a recent auction on Dec. Of course, futures contracts move up and down in value throughout the trading day, and investors are free to buy and sell them at any time the market is open. I expect that bitcoin futures nearing their settlement date will trade at a price that approximates the current price of bitcoin on Gemini's continuous exchange.
Gemini's data show that 4 p. One reason futures are popular is because they allow for the use of leverage, amplifying a speculator's gain or loss. The table below shows the simplistic math behind margin requirements.
In effect, investors can use margin to multiply their buying power. The embedded leverage in futures trading worries some market participants and brokerage firms. Trades in bitcoin are almost entirely speculative, as there are few commercial applications for the digital currency.
Furthermore, bitcoin is a very volatile asset even without leverage on top. For its part, CBOE outlined instances in which it would institute brief trading halts as a sanity check for fast-moving markets. But while CBOE can halt trading in futures, it has no control over spot markets for bitcoin, where transactions take place around the clock, every single day of the week.
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